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Estimating the Leverage Effect Using High Frequency Data

Author

Listed:
  • Guido Russi

    (OXERA Consulting Ltd, United Kingdom)

Abstract
This paper investigates the dynamics of the leverage effect over time, using high frequency data. By applying Realized Kernel techniques, a more precise estimate of Realized Correlation ¨C compared to standard subsampled estimators of Realized Correlation ¨C is derived. This new measure avoids the so-called Epps effect and permits to observe a level of Realized Correlation significantly different from zero ¨C unlike standard subsampled estimators. Modeling the resulting measure, a deeper insight into the dynamic behavior of Realized Correlation ¨C and hence into the dynamics of leverage effects ¨C is obtained. In particular, this paper studies the behavior of Realized Correlation across the recent financial crisis, to gain a deeper understanding of the factors underlying leverage effects at different stages of the crisis.

Suggested Citation

  • Guido Russi, 2012. "Estimating the Leverage Effect Using High Frequency Data," Review of Economics & Finance, Better Advances Press, Canada, vol. 2, pages 1-24, February.
    • Handle: RePEc:bap:journl:120101
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Leverage effect; Realized kernels; Realized correlation; Realized variance; Epps effect;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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